The opportunity — embrace dynamic business models in energy companies
The commercial models of national and international oil companies have evolved greatly over the past two decades, and there is a wide spectrum in terms of sophistication. On the one side there are simple marketing practices that focus on long-term fixed contracts, complemented by occasional tenders. On the other side, there are the fully integrated, commercially focused structures that have an active view on global system margins over time and employ a dynamic approach to their system optimization.
The latter, more dynamic structures enable companies to react faster to market changes, to draw upon the full strength of global trading arms, and to better manage market volatility.
The breakthrough — how Aramco leveraged advanced tech for strategic growth
Aramco’s commercial journey has progressed strongly over the past two decades, and most recently it has implemented a new and advanced commercial approach. This includes a margin-focused and fully integrated optimization of its domestic and international assets, and is called Global Optimization.
The commercial transformation is a stepping stone for Aramco’s Downstream business to move towards its exciting strategic ambitionsMohammed Y. Al-Qahtani, President, Downstream, Aramco
This is a far-reaching change and includes new commercial mindsets, cutting-edge digital tools, fresh processes, and sophisticated linear programming modelling. Oliver Wyman supported in the establishment of this commercial model in the following ways:
Boosting optimization capabilities: Asset economics is the most critical of these newly introduced capabilities.
Redefining processes around the commercial models: One example is the revamp of the monthly production planning process, with the Global Optimization team working to capture all possible opportunities across domestic and international refineries in a timely manner.
Leveraging and implementing the latest digital, AI, and machine learning tech: This change started with the development of a one-of-a-kind modelling tool, which is a key part of Global Optimization and supports system margin optimization through the issuance of centralized monthly production plans, and the optimal crude oil diets of Aramco refineries.
This is a very significant transformation in Aramco’s Downstream optimization practices and is what we explore in the report below.
Aramco’s growing Downstream global footprint and value-chain integration present many opportunities, and the building and enhancement of a digitally-focused and commercially savvy model such as Global Optimization will allow for these to be fully assessed and captured
The impact — advanced commercial models drive downstream success in energy companies
Oliver Wyman analysis shows that companies who transition towards a more sophisticated commercial model can achieve better results in their downstream businesses, weathering market volatility more successfully and outperforming their less commercially sophisticated competitors by an average premium of $1.5-$2 per barrel.
While acknowledging the multiple strategic, operational, and geographical factors impacting the overall performance of downstream business, the consistent average relative premium observed indicates that an advanced commercial model is one of the key drivers for downstream to fully realize its value-adding potential.
International benchmarks also show that having an integrated optimization system — such as Global Optimization — is core to the success of more advanced commercial models.